The Real Meaning Of Underwater Mortgages

After all the recent discussion surrounding the foreclosure and mortgage debt crisis, words come into play that some homeowners may not truly understand. While most of us have heard the term “underwater mortgage”, many do not realize all that is associated with this term. Besides drowning under a mortgage debt they cannot afford, being underwater often brings several other consequences.

In Need Of A Life Raft

An underwater mortgage essentially means that the homeowner owes more on the mortgage than the home is currently worth. This is becoming one of the biggest problems facing the mortgage industry today. Dropping home values not only make it difficult to sell a home, but finding a solution for mortgage debts on an underwater property can be nearly impossible.

Underwater mortgages are most common when a homeowner takes out a second mortgage or refinances their current mortgage. Borrowing equity against a property is risky in today’s market, especially when equity is limited or low to begin with. However, there are many cases in which additional mortgages are option the lender is offering at the time. Why? Because lenders are less willing to take a chance at lowering payments through loan modifications when a home is already struggling to maintain its value or be adequately paid for by the homeowner.

Unloading an underwater mortgage has become a major topic of debate among industry experts. While some strategies focus on offering homeowners help with lowering their monthly payments, other suggest encouraging lenders to write down principal mortgages on underwater homes is a better solution.

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